Why it’s time to sell your holiday home
Merryn Somerset Webb Jul 13, 2012
I can’t, for the life of me, imagine why everyone seems to want to own a home abroad. They need all the maintenance and upkeep of your main home, with the nasty twist that you have to do it all in another country and in a foreign language.
They also shut out the rest of the world to you: you have to justify their expense by visiting every year (along with friends you then have to cook and sheet-change for) rather than exploring new places.
And finally, as I pointed out a few weeks ago, if you own a second home anywhere in debt-ravaged Europe, you can be all but certain that the tax you paid when you bought it is just the first of many future taxes.
And so it is in France. Until now, if you have been renting out your house in France to holidaymakers, you have been liable to income tax at 20%. That rate is now set to rise to 35.5%. You might think that this is by the by, if you live in the UK. After all, French president François Hollande has hinted that it might not apply to UK owners, and in any case, under the double-taxation agreement it has with France, taxes paid in France are simply offset against your UK bill.
But there’s a problem: the new 15.5% charge is not income tax, it is a “social charge” (one that actual French residents already pay). That, say accountants, might mean you can’t offset it against your UK tax bill. The result? If you are a 40% taxpayer you could end up paying 55.5% on your rental income. Say you have a house in France bringing in €25,000 a year and you are a 40% taxpayer. You were paying €5,000 in France and another €5,000 on your UK bill. Now you’ll pay €8,875 in France but still have to hand over €5,000 in the UK.
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But that’s not the end of it. As The Sunday Times points out, the capital gains tax (CGT) payable on sales is likely to rise too – from 19% to 34.5%. This is again deemed a social charge, and it looks like you won’t be able to offset it against UK taxes either (here, the CGT rate is 28%). That isn’t as bad as it sounds – the French have a taper relief, which reduces the CGT based on the length of time of ownership. But it is still why agents are reporting that those who are already trying to sell have been stepping things up in the hope of completing before the new rules come in at the end of the month.
None of this is final yet – some say that charging non-residents social charges could be classified as unconstitutional by the EU. But even if this tax grab doesn’t make it through, those thinking about buying (or selling) property in Europe as prices fall should take it as a warning. When governments need money, they raise taxes on easy targets first. And what could be easier than property-owning foreigners?